Alcoa Profit Tops Estimates as Auto Usage Boosts Sales

Alcoa Inc., the largest U.S. aluminum producer, reported better-than-expected first-quarter profit after its rolled-products division gained on demand from auto manufacturers. The company's shares rose in after-market trading on the news.

Earnings excluding restructuring costs and other one-time items were 9 cents a share, the New York-based company said Tuesday in a statement. That beat the 5-cent average of 18 estimates compiled by Bloomberg.

The company’s rolled-product unit reported after-tax operating income of $59 million, more than Alcoa’s January forecast for about $42 million. Shortly after 5 p.m. in New York, the shares were up 2.1 percent at $12.79. During regular trading, the stock rose less than 1 percent to close at $12.53.

In the first quarter, Alcoa commissioned a expansion at an Iowa plant to supply automotive customers while also announcing permanent smelting shutdowns in Australia and the U.S.

Sales fell to $5.45 billion from $5.83 billion, trailing the $5.55 billion average estimate. Alcoa’s net loss in the quarter was 16 cents a share compared with net income of 13 cents.

Premiums Surge

While the average price for aluminum on the London Metal Exchange fell in the quarter, the impact was muted for Alcoa because of a 66 percent increase in U.S. warehouse premiums. Higher premiums mean Alcoa gets a better price for its commodity aluminum sales. The surcharge has gained amid delays to the delivery of aluminum stored at warehouses registered with the London Metal Exchange.

“Aluminum premiums will remain elevated, providing a lift for Alcoa’s upstream segments,” Jorge Beristain, a Greenwich, Connecticut-based analyst at Deutsche Bank AG, said in a note before the earnings were announced.

The warehouse bottleneck has been a source of controversy in the $90 billion-a-year aluminum industry, with Alcoa complaining that the holdups are reducing transparency in the market. The LME’s proposed rule change to speed up deliveries was delayed last month after a U.K. judge said the bourse’s consultation was flawed.

Higher premiums are a bright spot for Alcoa after nine straight years in which industry output has exceeded demand. Aluminum futures on the LME traded at $1,754 a metric ton in January through March, the lowest quarterly average since 2009.

While Alcoa has closed some older smelting plants, it’s completing construction of a vertically integrated mining, smelting and rolling complex in Saudi Arabia in partnership with the country’s state-owned mining company.

Alcoa, typically one of the first U.S. companies to report quarterly earnings, was removed from the Dow Jones industrial average in September after 44 years.